The opinion of the court was delivered by: John G. Koeltl, District Judge
The plaintiff, JSC Foreign Economic Association
Technostroyexport ("Techno"), is a Russian Open Joint Stock Corporation that has been involved in litigation for over ten years to obtain and enforce a judgment for more than $200 million against the former New York corporation International Development and Trade Services, Inc. ("IDTS") and its alter egos Edith Reich and Brigitte R. Jossem. The judgment, which confirmed two international arbitration awards and was entered in 1997, arose from a series of contracts Techno entered into in the early 1990s to supply Russian bulk metals to IDTS. IDTS received the metals and resold them through its sales agent Newco AG ("Newco"), a Swiss corporation, but IDTS failed to pay approximately $200 million that it owed Techno pursuant to these contracts. In a separate 2003 action, this Court granted summary judgment to Techno on its claim that Reich and Jossem diverted millions of dollars from IDTS for their personal use and found that Reich and Jossem were themselves liable for the full amount of the judgment. JSC Foreign Econ. Assoc. Technostroyexport v. Int'l Dev. & Trade Servs., Inc., 386 F. Supp. 2d 461, 471-76 (S.D.N.Y. 2005). That decision contains an extensive discussion of the facts pertaining to Reich and Jossem's diversion of IDTS funds which need not be repeated here.*fn1
Techno brings this civil action against a certified public accountant, Abraham Weiss, and his accounting firm, Weiss & Co., who Techno alleges were members along with Reich, Jossem, and others in a criminal enterprise whose aim was to hide, conceal, and launder the money that Reich and Jossem stole from Techno in the early 1990s, in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968. Techno asserts two claims against Weiss and Weiss & Co.: (1) violation of the substantive RICO statute 18 U.S.C. § 1962(c), and (2) conspiracy to violate the RICO statute in violation of 18 U.S.C. § 1962(d). Jurisdiction is proper pursuant to 18 U.S.C. § 1964.
The defendants have moved to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. In connection with that motion, the defendants submitted an affidavit attaching as exhibits fifty-seven documents which the defendants contend Techno had received by late 1998 when it deposed Weiss during its earlier attempts to enforce the judgment entered against IDTS. (Aff. of Sheldon H. Elsen, Oct. 23, 2006.) The defendants argue that Techno relied on these documents in bringing this action and thus that the documents should be considered to determine whether this action is untimely under the four-year statute of limitations for civil RICO actions. Techno has moved to strike this affidavit and the attached exhibits, as well as factual assertions the defendants made in reference to those exhibits.
For the reasons stated below, the motion to dismiss is denied and the motion to strike is denied as moot.
For the purpose of deciding this motion to dismiss, the following facts alleged in the Complaint are accepted as true.
Between 1991 and 1993, pursuant to contracts, Techno shipped metals to IDTS with a total value of over $400 million. Reich and Jossem caused IDTS to fail to pay Techo approximately $175 million of the amount owed, and they converted these proceeds to their personal use. (Compl. ¶¶ 49-50.)
Reich and Jossem were introduced to Weiss in late 1992 and retained him and his accounting firm Weiss & Co. in January 1993. (Id. ¶ 51.) Weiss learned about the IDTS contracts and knew that IDTS failed to remit the proceeds of its metal sales to Techno. Weiss represented IDTS in negotiations with Techno and Newco concerning the IDTS metals contracts. Weiss made several trips to Switzerland to meet with representatives of Newco. (Id.)
In maintaining IDTS's books, Weiss and Weiss & Co. failed to account for its revenue and expenditures or record its income accurately. Weiss & Co. prepared false tax returns for IDTS that concealed its revenues and income and exaggerated its expenses. (Id. ¶ 52.) Weiss directed the preparation of these tax returns with knowledge that Reich and Jossem would file them with the IRS without changes. (Id.)
In a letter dated December 9, 1993, Weiss wrote that IDTS sold the metals it received from Techno through its agent for $389 million. Newco retained some commission and expenses, but it transferred at least $303 million to IDTS. (Id. ¶ 53.) However, IDTS's tax returns for the years 1992-94 when these payments were received show "gross receipts" totaling less than $5.5 million. The majority of IDTS's proceeds from metal sales were never entered on its books or reported on its corporate tax returns. (Id. ¶¶ 54-55.)
With Weiss's knowledge, Reich and Jossem concealed millions of dollars that they stole through IDTS in an IDTS bank account at the United Mizrahi Bank in Switzerland. (Id. ¶ 56.) At the request of Reich and Jossem, Weiss reclassified IDTS revenue as loans to Reich and Jossem to conceal these proceeds further. Weiss and Weiss & Co. referred to the loans as "Swiss loans." (Id. ¶ 57.) Weiss knew that the "Swiss loan" funds were revenues of metal sales that should have been remitted to Techno, and he knew that reclassifying them as loans was a means for transferring the funds from Switzerland to Reich and Jossem's accounts in the United States and of avoiding any income tax payments. Weiss further knew that Reich and Jossem used some of the "Swiss loan" funds to purchase and renovate four apartments on East 72nd Street in Manhattan, which they have used as their residence since 1994. (Id. ¶¶ 57-58, 68.)
Techno alleges on information and belief that at the time when Weiss & Co. prepared tax returns for Reich and Jossem, Weiss knew that Reich had been convicted of wire fraud in connection with a scheme to generate fraudulent orders for auto parts manufactured by Dayco Corp. (Id. ¶¶ 60-61.) Reich filed for personal bankruptcy in September 1984, and the bankruptcy was discharged on February 18, 1995. Weiss knew that Reich was in bankruptcy proceedings. During those proceedings, Weiss knew that Reich received millions of dollars, including at least $14.8 million transferred by Newco to her personal account in Switzerland, yet the 1992 tax return Weiss & Co. prepared for Reich did not reflect this income. (Id. ¶¶ 62-65.) Because Reich never disclosed these payments to the bankruptcy court or that she had received millions of additional dollars that she stole from IDTS, Techno alleges that the funds were proceeds of bankruptcy fraud. Techno alleges that Weiss and Weiss & Co. knew that these funds were not only stolen through IDTS, but also represented proceeds from bankruptcy fraud. (Id. ¶¶ 65-67.)
Weiss caused M & B Oxford 41, Inc. ("M & B") to be incorporated in 1993 knowing that's its sole purpose was to hold title to the 72nd Street properties of Reich and Jossem. At first Jossem was the sole shareholder of M & B, until she conveyed all of her stock through a chain of companies that are all alter egos of Reich and Jossem. When Techno intensified its efforts to recover its stolen money in 1997, Weiss together with an Israeli attorney Michael Shine devised a stock purchase agreement to transfer shares of the alter ego company holding the 72nd Street properties to another alter ego of Reich and Jossem in exchange for the repayment of various fictitious loans. (Id. ¶¶ 69-70.)
Weiss also devised a scheme to create dummy corporations with no business activities that paid "consulting fees" to Jossem as a way to launder the money stolen through IDTS. Weiss formed Mabro Trading International, Ltd. ("Mabro") in 1993, and Weiss caused Weiss & Co. to prepare fraudulent federal and state tax returns for Mabro which showed millions of dollars in "gross receipts or sales" but offset this income with fraudulent deductions for rent payments associated with the 72nd Street properties and for Jossem's personal expenses. Jossem received over $1 million in "consulting fees" from Mabro, but these fees were actually transfers of stolen fees from IDTS back to Jossem. (Id. ¶¶ 71-76.)
Techno alleges, on information and belief, that Mabro filed its last federal tax return in 1998. Techno further alleges that around this time Weiss and Shine created the company Hasnaco Trading Ltd. ("Hasnaco") under the laws of Cyprus to replace Mabro and to simplify tax preparation work because Hasnaco was a foreign company and thus not required to file United States tax returns. (Id. ¶ 77.) Jossem received over $6 million in payments from Hasnaco between 1999 and 2001, which her tax returns describe as consulting income. (Id. ¶¶ 78-80.) Weiss knew that the payments were not compensation for consulting services or any legitimate business, but rather were transfers of the funds stolen by Reich and Jossem. (Id.) Weiss caused Weiss & Co. to deduct rent as a business expense on Jossem's tax returns, knowing that Jossem never paid rent to another entity and did not use her residence in the 72nd Street properties for business purposes. (Id. ¶ 81.)
Weiss also devised a means for Reich and Jossem to take part in a variety of real estate developments in the Hamptons using the proceeds they had stolen through IDTS. In 1997, Reich, Jossem, and Weiss began purchasing property for future development in the name of Atrium Square, Inc., which was an alter ego of Reich and Jossem. (Id. ¶¶ 24, 83.) Weiss then advocated the approach of using a series of single-purpose entities, rather than Atrium Square alone, to conduct real estate transactions to avoid adverse tax consequences and to make it more difficult to trace the source of the money used to purchase the real estate projects. (Id. ¶¶ 83-84.) Techno alleges on information and belief that funds were funneled through Hasnaco to finance the real estate projects of these ...